Earnings, accruals, cash flows, and EBITDA for agribusiness firms

This study examines empirical relationships of earnings, accruals, and cash flows for the U.S. food supply chain sector (i.e., agribusiness) and compares them with results for the complete U.S. market. In addition, we evaluate earnings before interest, taxes, depreciation, and amortization (EBITDA) as a potential proxy for cash flow. Empirical results show that while earnings and accruals are systematically positively related, accruals and cash flows are systematically negatively related. Moreover, both the magnitude and the behavior of EBITDA across different levels of cash flows for agribusinesses do not mimic cash flows. Thus, this metric is not a valid proxy for cash flow in accrual research studies.